American businesses moving operations out of China and into Mexico would be economically beneficial for all of North America, according to a new report from Rice University’s Baker Institute for Public Policy.
The U.S. government has put considerable pressure on businesses to move out of China under each of the last two presidential administrations, wrote David Gantz, the Will Clayton Fellow in Trade and International Economics at the Baker Institute. He offered nearshoring – the outsourcing of production to companies in a nearby country – as an example of an effective tactic for strengthening North American economies because it lowers transportation costs and reduces delays.
“A container shipped from Shanghai to California or Mexico typically requires three weeks or more at sea, and shifting production from China to Vietnam or Malaysia doesn’t appreciably shorten transit times,” Gantz wrote. “In contrast, a truck-carried container dispatched from Monterrey in Mexico to most cities in the U.S. takes three days or fewer to arrive.”
Shortening the supply chains and substituting lower-cost Mexican labor for Chinese labor could reduce the cost of goods being sold in the U.S., which would benefit both American consumers and the global competitiveness of American exports, he explains. Such a shift would strengthen Mexico’s economy and labor market and materials suppliers in North America at the expense of China and other Asian countries, according to the report.
“For the United States in particular, there is an indirect benefit of more production of labor-intensive goods in Mexico instead of China: When investment in manufacturing facilities in Mexico creates new jobs for Mexican workers, undocumented immigration to the United States may be reduced,” he wrote.
For the full examination of benefits and risks, read the report here.